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Thought experiment #3 Create a hypothetical new stable coin. Issue one coin for every dollar put into the stable coin. For every dollar subtracted pay out the

by Sloppy 4y ago

Thought experiment #3 Create a hypothetical new stable coin. Issue one coin for every dollar put into the stable coin. For every dollar subtracted pay out the dollar and take the coin out of circulation until another USD comes back in. Make money on exchange fees ONLY. No fair using the coins or dollars in any other way. The schemes for stable coins ALL have failure mods until someone does #3. The most likely entity to do #3 is the US treasury (or other national entity). But if someone is willing to live with income from fees only, they could do #3. Crypto currencies have efficiencies enough to make this a viable option.

enkid 4y ago
How is this different from a bank account?
- zmgsabst 4y ago
  The bank doesn’t actually store your dollars and your bank account can’t make transactions on the blockchain.
  - lxgr 4y ago
    And where would the issuer of such a hypothetical stablecoin store actual dollars, if not in bank accounts or government bonds?
zmgsabst 4y ago
I’ve been hoping we get #3 but with commodities and precious metals. I want a “stable token” that represents barrels of oil, wheat, etc or physical gold, silver, etc. The argument against the gold standard is that there isn’t “enough” to represent money — but I think we’d gain a lot of stability if prices were denominated in a basket of commodities.
- causalmodels 4y ago
  Not really sure this would work. The problem with physical commodities is that you actually have to store them somewhere.
  - tomatocracy 4y ago
    Not to mention that there is already a small industry which does this electronically (LME warehouses) and in a way which is trusted by the largest traders in the business. Why wouldn't you just use that instead?
  - hypertele-Xii 4y ago
    Having to store digital crap securely turns out to be a far bigger problem than most people realized. Maybe still less than physical commodities, but let's not pretend crypto is "free" and easy to store and takes up no space.
    - causalmodels 4y ago
      The cost of storing a digital asset be it USD, a futures contract, or crypto is significantly less than paying to store physical goods. I don't see how this is up for debate.
- nradov 4y ago
  There are already ETFs which hold precious metals and other commodities. But most commodities aren't really "stable" stores of value themselves. Large quantities of wheat or oil can only be stored for a few years at most before they start to rot or decay. Storage is also quite expensive, especially when you run out of big oil tanks and have to charter tankers to hold the overflow.
- SilasX 4y ago
  They have XAUT and PAXG as ERC20 tokenized gold. Article (sorry if shady): https://www.publish0x.com/journey-to-the-cryptocurrency-ocean/tokenized-gold-paxg-xaut-xyylrgo https://www.publish0x.com/journey-to-the-cryptocurrency-ocea...
- landemva 4y ago
  >> The argument against the gold standard is that there isn’t “enough” to represent money I hadn't heard anyone seriously say that. What amount of additional gold should be mined to fix this alleged problem? Since there are 84M Litecoin, is LTC 4x better than BTC with 21M? https://www.investopedia.com/articles/investing/040515/what-litecoin-and-how-does-it-work.asp https://www.investopedia.com/articles/investing/040515/what-...
- lottin 4y ago
  > The argument against the gold standard is that there isn’t “enough” to represent money I literally have never heard this argument against the gold standard. What amount of gold would be needed for it to be able to sufficiently "represent money"? And why do you need gold to "represent money" anyway? Isn't gold itself money under the gold standard?
  - not2b 4y ago
    During the 19th century, the gold standard led to crazy inflation as new gold was found, followed by crazy deflation as the gold strikes got used up. Farmers were struggling because the money they borrowed to be able to grow crops would drop so much in value by harvest time. This is what William Jennings Bryan's "Cross of Gold" speech was about: he was pushing for the free coinage of silver at a ratio of silver to gold of 16 to 1. This would have increased the money supply (silver as well as gold would be money) and replaced a deflationary environment to an inflationary one. Now, you can argue that this proposal was a gimmick and argue about whether it would have worked. But the point remains that the gold standard as implemented in the 19th century was a disaster for debtors and farmers had to borrow every year, unless new gold was discovered somewhere recently.
e9 4y ago
yes and a lot of these coins claim they are all backed but it's just a lip service, it's too lucrative to not do full 1-1 backing, you are right only something like US treasury can do it. https://markets.businessinsider.com/news/currencies/tether-cftc-41-million-misleading-statements-stablecoin-fiat-currency-backing-2021-10?op=1 https://markets.businessinsider.com/news/currencies/tether-c...
betwixthewires 4y ago
Sure, direct 1:1 collateralized stable coins work, but look at the "algorithm" behind the underlying asset. USD itself is an interesting stablecoin, algorithmic in nature with a board able to make decisions to change the algorithm. It is not pegged to an asset, rather it attempts to be pegged to an economic state, primarily an inflation rate, using issuance and purchase of other assets. It has failure modes as well. Note that algorithmic and reserve based crypto stablecoins are both exposed to this, since one is backed and the other is pegged to it. So if you want to avoid that, you need to peg your cryptocoin to something without that, i.e not a fiat currency. This is hard to do with collateral, some gold backed coins try. Pegging a stablecoin to some commodity or asset or index or "basket" algorithmically is much easier, if somewhat less stable depending on the system that is built to do it.
- TuringNYC 4y ago
  >> So if you want to avoid that, you need to peg your cryptocoin to something without that, i.e not a fiat currency. Except is that really the issue? We're not trying to worried that dollar slides and hence the stablecoin is worth less. We're mostly worried that there arent dollars backing the stablecoin to begin with.
  - betwixthewires 4y ago
    Mainly with stablecoins we are worried that there's no 1:1 correlation between the two assets. Whether they're backed or not is an implementation approach. People are worried that the dollar slides, which was a big motivator for bitcoin in the first place. But my point is simply that the dollar is an algorithmic asset who's algorithm is governed by a governance body and has a targeted value based on economic factors, and if you don't want that, you should peg to an asset that does not have those properties. If you want to do backing with dollars it's easy, just spin up a corporation, keep dollars on a balance sheet and you're done. Doing it with other assets if you want requires vaults and things, it's much easier to do it algorithmically, and the only reason reserves are easier with dollars than with other assets is that other assets actually exist, dollars are just a ledger in a computer, again, controlled algorithmically and governed by a board.
carlosdp 4y ago
This already exists, Circle Finance + Coinbase issue USDC, for example. It's just backed by 1:1 actual USD (at least it will be 1:1 very soon, as in 100% reserve, according to public statements, I haven't checked recently if that is complete).
- whimsicalism 4y ago
  They definitely do not back with 100% paper. They hold bonds and potentially corporate paper as well.
- TuringNYC 4y ago
  Is there a central location where the public can see the public statements frequently updated? I'm very skeptical about a public filing from three months ago when collateral was worth 2x what it is today...
  - ac29 4y ago
    https://www.centre.io/usdc-transparency https://www.centre.io/usdc-transparency The extent of the detail that is given in the latest report is that their backing assets are "limited to cash and short-dated U.S. government obligations".
whimsicalism 4y ago
Yeah, but now people have to actually trust that you are being truthful about your backing.
pavel_lishin 4y ago
Isn't this what Tether purports to do?
- baq 4y ago
  Tether is the next Big Short of the crypto community. I’m yet to find someone who doesn’t think tether will blow up. It’s going to be an interesting week when that happens.
  - drexlspivey 4y ago
    I mean if you are so sure about that the trade is pretty simple. You can trade USDT perpetual futures currently at 0.9989. You are probably going to respond with the "markets can stay irrational longer than you can stay solvent" meme but I don't see any downside to this trade other than the opportunity cost of investing your dollars somewhere else. There is no scenario where USDT goes to $10 and you lose your money.
    - ceejayoz 4y ago
      > I don't see any downside to this trade other than the opportunity cost of investing your dollars somewhere else. Shorting comes with interest fees for the borrowed asset. If Tether holds off a collapse for a few years, that can get substantial.
      - drexlspivey 4y ago
        I am talking about futures not shorting, no borrowing fee if you don’t do it on margin.
        ceejayoz 4y ago
        Then you're talking about a setup where a) the counterparty can fail a margin call and b) the exchange it's happening on can get hacked or go bankrupt. No fucking thank you.
tomatocracy 4y ago
Even this scheme is subject to the risk that the "issuer" of the stablecurrrency stays solvent enough to pay the operating costs of those trades (or at least that there is a sufficient supply of replacement issuers and the legal system and government where the issuer is located appropriately recognise segregation of those assets on a bankruptcy and that it has a low cost and efficient bankruptcy regime), or if it's the US treasury the risk of expropriation of a change to the system which could be different from the risk with traditional currency. Ultimately you're taking credit and/or performance risk on someone.
runeks 4y ago
What’s the practical difference between this and a debit card?

by Sloppy 4y ago

enkid 4y ago

How is this different from a bank account?

zmgsabst 4y ago
The bank doesn’t actually store your dollars and your bank account can’t make transactions on the blockchain.
- lxgr 4y ago
  And where would the issuer of such a hypothetical stablecoin store actual dollars, if not in bank accounts or government bonds?

zmgsabst 4y ago

I’ve been hoping we get #3 but with commodities and precious metals. I want a “stable token” that represents barrels of oil, wheat, etc or physical gold, silver, etc. The argument against the gold standard is that there isn’t “enough” to represent money — but I think we’d gain a lot of stability if prices were denominated in a basket of commodities.

causalmodels 4y ago
Not really sure this would work. The problem with physical commodities is that you actually have to store them somewhere.
- tomatocracy 4y ago
  Not to mention that there is already a small industry which does this electronically (LME warehouses) and in a way which is trusted by the largest traders in the business. Why wouldn't you just use that instead?
- hypertele-Xii 4y ago
  Having to store digital crap securely turns out to be a far bigger problem than most people realized. Maybe still less than physical commodities, but let's not pretend crypto is "free" and easy to store and takes up no space.
  - causalmodels 4y ago
    The cost of storing a digital asset be it USD, a futures contract, or crypto is significantly less than paying to store physical goods. I don't see how this is up for debate.
nradov 4y ago
There are already ETFs which hold precious metals and other commodities. But most commodities aren't really "stable" stores of value themselves. Large quantities of wheat or oil can only be stored for a few years at most before they start to rot or decay. Storage is also quite expensive, especially when you run out of big oil tanks and have to charter tankers to hold the overflow.
SilasX 4y ago
They have XAUT and PAXG as ERC20 tokenized gold. Article (sorry if shady): https://www.publish0x.com/journey-to-the-cryptocurrency-ocean/tokenized-gold-paxg-xaut-xyylrgo https://www.publish0x.com/journey-to-the-cryptocurrency-ocea...
landemva 4y ago
>> The argument against the gold standard is that there isn’t “enough” to represent money I hadn't heard anyone seriously say that. What amount of additional gold should be mined to fix this alleged problem? Since there are 84M Litecoin, is LTC 4x better than BTC with 21M? https://www.investopedia.com/articles/investing/040515/what-litecoin-and-how-does-it-work.asp https://www.investopedia.com/articles/investing/040515/what-...
lottin 4y ago
> The argument against the gold standard is that there isn’t “enough” to represent money I literally have never heard this argument against the gold standard. What amount of gold would be needed for it to be able to sufficiently "represent money"? And why do you need gold to "represent money" anyway? Isn't gold itself money under the gold standard?
- not2b 4y ago
  During the 19th century, the gold standard led to crazy inflation as new gold was found, followed by crazy deflation as the gold strikes got used up. Farmers were struggling because the money they borrowed to be able to grow crops would drop so much in value by harvest time. This is what William Jennings Bryan's "Cross of Gold" speech was about: he was pushing for the free coinage of silver at a ratio of silver to gold of 16 to 1. This would have increased the money supply (silver as well as gold would be money) and replaced a deflationary environment to an inflationary one. Now, you can argue that this proposal was a gimmick and argue about whether it would have worked. But the point remains that the gold standard as implemented in the 19th century was a disaster for debtors and farmers had to borrow every year, unless new gold was discovered somewhere recently.

e9 4y ago

yes and a lot of these coins claim they are all backed but it's just a lip service, it's too lucrative to not do full 1-1 backing, you are right only something like US treasury can do it. https://markets.businessinsider.com/news/currencies/tether-cftc-41-million-misleading-statements-stablecoin-fiat-currency-backing-2021-10?op=1 https://markets.businessinsider.com/news/currencies/tether-c...

betwixthewires 4y ago

Sure, direct 1:1 collateralized stable coins work, but look at the "algorithm" behind the underlying asset. USD itself is an interesting stablecoin, algorithmic in nature with a board able to make decisions to change the algorithm. It is not pegged to an asset, rather it attempts to be pegged to an economic state, primarily an inflation rate, using issuance and purchase of other assets. It has failure modes as well. Note that algorithmic and reserve based crypto stablecoins are both exposed to this, since one is backed and the other is pegged to it. So if you want to avoid that, you need to peg your cryptocoin to something without that, i.e not a fiat currency. This is hard to do with collateral, some gold backed coins try. Pegging a stablecoin to some commodity or asset or index or "basket" algorithmically is much easier, if somewhat less stable depending on the system that is built to do it.

TuringNYC 4y ago
>> So if you want to avoid that, you need to peg your cryptocoin to something without that, i.e not a fiat currency. Except is that really the issue? We're not trying to worried that dollar slides and hence the stablecoin is worth less. We're mostly worried that there arent dollars backing the stablecoin to begin with.
- betwixthewires 4y ago
  Mainly with stablecoins we are worried that there's no 1:1 correlation between the two assets. Whether they're backed or not is an implementation approach. People are worried that the dollar slides, which was a big motivator for bitcoin in the first place. But my point is simply that the dollar is an algorithmic asset who's algorithm is governed by a governance body and has a targeted value based on economic factors, and if you don't want that, you should peg to an asset that does not have those properties. If you want to do backing with dollars it's easy, just spin up a corporation, keep dollars on a balance sheet and you're done. Doing it with other assets if you want requires vaults and things, it's much easier to do it algorithmically, and the only reason reserves are easier with dollars than with other assets is that other assets actually exist, dollars are just a ledger in a computer, again, controlled algorithmically and governed by a board.

carlosdp 4y ago

This already exists, Circle Finance + Coinbase issue USDC, for example. It's just backed by 1:1 actual USD (at least it will be 1:1 very soon, as in 100% reserve, according to public statements, I haven't checked recently if that is complete).

whimsicalism 4y ago
They definitely do not back with 100% paper. They hold bonds and potentially corporate paper as well.
TuringNYC 4y ago
Is there a central location where the public can see the public statements frequently updated? I'm very skeptical about a public filing from three months ago when collateral was worth 2x what it is today...
- ac29 4y ago
  https://www.centre.io/usdc-transparency https://www.centre.io/usdc-transparency The extent of the detail that is given in the latest report is that their backing assets are "limited to cash and short-dated U.S. government obligations".

whimsicalism 4y ago

Yeah, but now people have to actually trust that you are being truthful about your backing.

pavel_lishin 4y ago

Isn't this what Tether purports to do?

baq 4y ago
Tether is the next Big Short of the crypto community. I’m yet to find someone who doesn’t think tether will blow up. It’s going to be an interesting week when that happens.
- drexlspivey 4y ago
  I mean if you are so sure about that the trade is pretty simple. You can trade USDT perpetual futures currently at 0.9989. You are probably going to respond with the "markets can stay irrational longer than you can stay solvent" meme but I don't see any downside to this trade other than the opportunity cost of investing your dollars somewhere else. There is no scenario where USDT goes to $10 and you lose your money.
  - ceejayoz 4y ago
    > I don't see any downside to this trade other than the opportunity cost of investing your dollars somewhere else. Shorting comes with interest fees for the borrowed asset. If Tether holds off a collapse for a few years, that can get substantial.
    - drexlspivey 4y ago
      I am talking about futures not shorting, no borrowing fee if you don’t do it on margin.
      - ceejayoz 4y ago
        Then you're talking about a setup where a) the counterparty can fail a margin call and b) the exchange it's happening on can get hacked or go bankrupt. No fucking thank you.

tomatocracy 4y ago

Even this scheme is subject to the risk that the "issuer" of the stablecurrrency stays solvent enough to pay the operating costs of those trades (or at least that there is a sufficient supply of replacement issuers and the legal system and government where the issuer is located appropriately recognise segregation of those assets on a bankruptcy and that it has a low cost and efficient bankruptcy regime), or if it's the US treasury the risk of expropriation of a change to the system which could be different from the risk with traditional currency. Ultimately you're taking credit and/or performance risk on someone.

runeks 4y ago

What’s the practical difference between this and a debit card?